CEO Pay Up 7% for Early Filers

Realized vs. Realizable Pay Enters Pay Debate

April 04, 2014 12:13 PM Eastern Daylight Time

NEW YORK--(BUSINESS WIRE)--CEO total compensation among 100 early proxy filers grew 7% in 2013 to a
median $6.7 million. Generally strong corporate performance, with median
net income up 8%, closely tracked the increase in compensation. The
findings are based on a study by executive compensation consultants
Steven Hall & Partners of 100 companies with revenues greater than $1
billion.

Year over year changes in long-term incentive values, which include
stock options, restricted stock, performance shares, and long-term cash
incentive payouts, were not directly correlated with annual changes in
profitability or shareholder return. Long-term incentive increases were
observed at companies with both increased and decreased profits, as well
as companies with positive and negative total shareholder return (TSR).

“This isn’t surprising or inappropriate,” commented Nora McCord, a
Managing Director of Steven Hall & Partners. “Long-term pay is designed
to incentivize future performance. Over time, if company performance
improves, these awards will increase in value. Alternatively, if
performance is stagnant or declines, rewards can drop below their
targeted values or plummet to zero.”

* Medians are not additive.

Realized and Realizable Pay

According to Steven Hall & Partners, disclosing realized or realizable
pay over the performance period is emerging as a means to provide
shareholders with a clear picture of how pay and performance are linked.
Current proxy regulations do not yet require realized and realizable
disclosure, though 26% of the companies in the study (compared to 24%
last year) included such a discussion.

In general, realized pay represents amounts actually received
while realizable pay represents a mix of amounts actually
received as well as outstanding long-term incentive awards.

“There is no consensus among those in the corporate governance community
about how realized or realizable disclosure should look, so many
companies are not ready to add this information to their proxy,” noted
Ms. McCord. “We expect greater adoption as companies become more
familiar with the concept and Dodd-Frank legislation mandating this
disclosure is implemented.” Among Fortune 100 companies, Steven Hall &
Partners expects to see a much larger percentage making this disclosure
this year.

Financial Performance

Among the 100 companies in the study, at median

Revenues were up 5% over 2012

Net income was up 8%

Total shareholder return (TSR) was up 32%

Trends in Pay Mix

Average CEO pay mix was unchanged in 2013 from 2012. As a percentage of
total pay

Definitions for both realized and realizable pay are not standardized
and are often dependent on their context. Realized pay includes salary,
incentive payouts (both short- and long-term) and the value of equity
awards upon vesting or exercise of options. (There is no consensus on
whether to value options on the date of vesting or the date of
exercise.) Realizable pay represents a mix of both amounts actually
received, including salary and incentive payouts, as well as outstanding
long-term incentive awards.

About the Study

The study analyzed compensation data for the most recent two years as
disclosed in the first 100 definitive proxy statements filed in 2014 for
companies with revenues greater than $1 billion and CEOs with a minimum
tenure of two years. For additional details regarding the study please
contact Andrew Healy at 212-625-2363 or ahealy@waterandwallgroup.com.